Thinking about closing your limited company and worried about liability? In most situations you will not become personally liable for its debt.

We can:

  • Let you know if you are liable for company debt.
  • Assess you and your company’s circumstances – providing you free confidential advice.
  • Reduce creditor pressure and provide protection from legal action.
  • Closing your company in an orderly manner allowing you to walk away or start afresh.
  • All unsecured debts will die with the liquidation of your company.

Freephone


Live Chat


Click here

    GDPR has been accepted.By using this form you agree with the storage and handling of your data by this website. Privacy Policy
    star_rate star_rate star_rate star_rate star_rate View Reviews

    If I close a limited company, will I be personally liable for its debt?

    COVID-19: Coronavirus continues to impact people and business world-wide. We are fully operable and are able to help you through these difficult unprecedented times.Read moreFor immediate help & free advice, please freephone:

    In most situations, you will not become personally liable for the debts of a limited company. A limited company is classed as a separate entity to the directors and shareholders who are associated with it. However, that doesn’t mean that as a director, you can never be held liable for the company’s debts, and there are several scenarios where this may be the case, such as if you sign a personal guarantee.

    What is a liability?

    In terms of business, liability refers to a debt for which your company is responsible. This liability could come in the form of a loan, asset finance, unpaid invoices, accumulated tax or rent falling due. In the case of a limited company that cannot meet its liabilities, as director, you have the protection of limited liability.

    Generally, this means that directors cannot be held personally liable or responsible for the debts of a limited company unless they have signed personal guarantees.

    When can a director be held liable for company debts?

    Although a limited company’s liabilities are its own and don’t attach to the director, there are certain circumstances where a director may be held responsible. Examples of these are below but are not limited to:

    • Personal Guarantees
      The most common circumstance in which a director could be liable for their company’s debt comes from personal guarantees. If you have signed a personal guarantee, you will be liable for the debt if the company cannot meet its obligations.
    • Trading whilst insolvent
      Trading whilst insolvent occurs when a company continues trading while the directors know it’s insolvent, increasing its deficit. If, as director, you allowed this, or have failed in your duties as a director, you may lose the protection of limited liability and be held liable for some company debts.
    • Overdrawn Directors Loan Account
      If you have borrowed money from the company which has not been repaid, and as a result, you have an “overdrawn” director’s loan account, then a liquidator could pursue you to recover the amount.

    What are the consequences of being liable for company debt?

    If, as a director, you are found to be personally liable for company debts, then just like any personal debts, you will be responsible for their repayment.

    If you cannot repay these liabilities, then you may have to consider selling or refinancing assets. If this is not an option, creditors may force you into bankruptcy.

    In some cases, if you are found liable as a consequence of not fulfilling your duties as director, you may be disqualified and barred from being a director for up to 15 years.

    We can help by providing, free confidential advice if you are worried about being disqualified as a director.
    personally liable company debt

    What help is available?

    If you are looking to close your company and are worried about being personally liable for your company’s debts. We can help guide you on the best way forward and let you know what you could be liable for.

    Closing the company – writing off debts

    If a company is insolvent and can no longer trade, it may enter a Creditors Voluntary Liquidation (CVL), which would see the company closed down and the assets sold. The funds raised from the sale will be used to pay for the liquidation process, and any funds left over will be distributed equally amongst the creditors. Any remaining unsecured company debt is then written off.

    How to write off company debt and start again

    If you are liable, what help is available for personal debt?

    If your company’s limited liability protection is voided, you will be liable for the company’s debts, and ultimately responsible for repaying them. There are options available to help you if you run into financial difficulty, but they differ from insolvency procedures for limited companies, and your options depend on the scale of these debts and your personal financial situation.

    One of these options is an Individual Voluntary Arrangement (IVA). An IVA is a formal repayment process that consolidates your debts into a single monthly repayment, tailored to your circumstances so they’re affordable. The arrangement involves you repaying your debt over five years; after which, the remaining unpaid debt is written off.

    If your debts don’t justify an IVA or the chances of you paying them back mean the arrangement isn’t viable, you may be better off going bankrupt.

    In the UK, bankruptcy applies to individuals and sole traders. Companies ‘going bankrupt’ undergo a liquidation.

    Bankruptcy writes off your debts, using the funds generated from selling personal assets to repay the debts. You have very little control of the process and going bankrupt will bar you from employment in certain professions.

    More options for personal debts

    In summary

    Company debts are separate from your personal debts, so you would usually not be held personally liable when a company goes through liquidation. However, as outlined above, there are instances when you, as a director, would be held personally liable. In those situations, liabilities which emerge as a result may push you into personal insolvency.

    Beverley Horton Christopher Callaghan Stephen Hall

    Free Consultation

    Book a free telephone consultation with one of our initial advisers

      Testimonials

      Bilal Khalifeh

      star_rate star_rate star_rate star_rate star_rate

      I have received free consultation from Beverley Horton. The consultation was via online chat, easy and very effective.

      View More

      Giampiero Mastino

      star_rate star_rate star_rate star_rate star_rate

      Thank you for your fast response and help

      View More

      Alicia Reade

      star_rate star_rate star_rate star_rate star_rate

      An answer within minutes to something I needed the answer to! Great help, thank you!

      View More

      - As seen in -